The Bitcoin Lightning Network: State Channels, HTLCs, and Instant Payments
How Bitcoin scales peer-to-peer micro-transactions to millions of TPS using bi-directional payment channels and Hash Time-Locked Contracts.
An in-depth explanation of off-chain balance state updates, routed gossip payments, channel liquidity rebalancing, and on-chain settlement.
1. Bi-Directional Payment Channels
The Lightning Network operates as a second-layer routing network atop Bitcoin. Two participants open a 2-of-2 multisig funding transaction on the base blockchain.
Once opened, the parties can exchange thousands of cryptographic commitment transactions off-chain instantly at zero miner fee, committing to the Bitcoin blockchain only when closing the channel.
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